SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT
     OF 1934 For the quarter ended September 30, 2001

                                                      OR

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
     OF 1934 For the transition period from _______________ to ________________.


                                                Commission File Number   0-25933


                        SOUTHCOAST FINANCIAL CORPORATION
        (Exact Name of Small Business Issuer as Specified in its Charter)


     South Carolina                                       58-2384011
(State of Incorporation)                 (I.R.S. Employer Identification Number)



               530 Johnnie Dodds Boulevard, Mt. Pleasant, SC 29464
                    (Address of Principal Executive Offices)


                                 (843) 884-0504
                           (Issuer's Telephone Number)


         Check whether the issuer (1) has filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter periods that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

          [X] Yes [ ] No

         State the number of shares  outstanding of each of the issuer's classes
of common  equity,  as of the latest  practicable  date:  Common  Stock - No Par
Value: 1,098,777 Shares Outstanding on October 31, 2001.

         Transitional Small Business  Disclosure Format (Check one):

         [ ] Yes [X] No












                                       1
<Page>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                        SOUTHCOAST FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS


<Table>
<Caption>
                                                                                                   (Unaudited)
                                                                                                   September 30,        December 31,
                                                                                                       2001                 2000
                                                                                                       ----                 ----
ASSETS
<S>                                                                                              <C>                  <C>
   Cash and due from banks ...............................................................       $   5,816,993        $   3,942,566
   Federal funds sold ....................................................................           3,099,000            1,350,000
   Investment securities available for sale ..............................................           6,815,240            4,213,773
   Loans, net of allowance of $1,140,058 and $940,758 ....................................          94,700,146           74,434,434
   Property and equipment - net ..........................................................           7,465,924            6,169,583
   Other assets ..........................................................................           2,591,757            2,017,975
                                                                                                 -------------        -------------
       Total assets ......................................................................       $ 120,489,060        $  92,128,331
                                                                                                 =============        =============

LIABILITIES
   Deposits
     Noninterest-bearing .................................................................       $  12,539,536        $   9,240,702
     Interest bearing ....................................................................          69,508,687           56,930,894
                                                                                                 -------------        -------------
       Total deposits ....................................................................          82,048,223           66,171,596

   Other borrowings ......................................................................          27,300,000           16,225,000

   Other liabilities .....................................................................             907,490              579,169
                                                                                                 -------------        -------------

       Total liabilities .................................................................         110,255,713           82,975,765
                                                                                                 -------------        -------------
SHAREHOLDERS' EQUITY
   Common stock (no par value; 20,000,000 shares authorized;
     1,091,777 shares outstanding at September 30, 2001 and
     947,872 at December 31, 2000) .......................................................          10,222,961            9,669,155
   Retained deficit ......................................................................             (65,546)            (503,796)
   Accumulated other comprehensive income (loss) .........................................              75,932
                                                                                                                      -------------
                                                                                                                            (12,793)
       Total shareholders' equity ........................................................          10,233,347            9,152,566
                                                                                                 -------------        -------------
       Total liabilities and shareholders' equity ........................................       $ 120,489,060        $  92,128,331
                                                                                                 =============        =============
</Table>









         See notes to consolidated financial statements.




                                       2
<Page>


                        Southcoast Financial Corporation
                               Statement of Income
                                   (Unaudited)

<Table>
<Caption>
                                                                      Nine months      Nine months     Three months     Three months
                                                                         Ended            Ended           Ended            Ended
                                                                     Sept 30, 2001    Sept 30, 2000   Sept 30, 2001    Sept 30, 2000
                                                                     -------------    -------------   -------------    -------------
INTEREST INCOME
<S>                                                                    <C>              <C>              <C>              <C>
    Loans, including fees ......................................       $5,989,743       $4,205,871       $2,051,856       $1,617,565
    Investment Securities ......................................          341,142          239,740          118,041          100,487
    Federal funds sold .........................................           71,233           90,824           17,605           55,007
                                                                       ----------       ----------       ----------       ----------

      Total interest income ....................................        6,402,118        4,536,435        2,187,502        1,773,039

INTEREST EXPENSE
    Deposits and borrowings ....................................        3,375,371        2,389,542        1,087,512        1,023,476
                                                                       ----------       ----------       ----------       ----------

      Net interest income ......................................        3,026,747        2,146,893        1,099,990          749,563

PROVISION FOR POSSIBLE LOAN LOSSES .............................          200,000           90,000           75,000           30,000
                                                                       ----------       ----------       ----------       ----------

    Net interest income after provision for loan losses ........        2,826,747        2,056,893        1,024,990          719,563
                                                                       ----------       ----------       ----------       ----------

NONINTEREST INCOME
    Service fees on deposit accounts ...........................          313,400          159,955          119,506           62,260
    Fees on loans sold .........................................          368,776          166,877          133,942          108,873
    Other ......................................................           94,762           96,526           25,111           37,968
                                                                       ----------       ----------       ----------       ----------

      Total non-interest income ................................          776,938          423,358          278,559          209,101
                                                                       ----------       ----------       ----------       ----------

NONINTEREST EXPENSES
    Salaries and employee benefits .............................        1,790,985        1,416,017          643,548          509,710
    Occupancy ..................................................          178,844          101,014           64,785           38,564
    Furniture and equipment ....................................          294,531          251,931           97,519           95,573
    Advertising and public relations ...........................           56,851           46,081           21,893           21,545
    Professional fees ..........................................          122,829           64,468           38,450           25,747
    Travel and entertainment ...................................          137,801           88,499           35,322           30,592
    Telephone, postage and supplies ............................          163,643          144,624           57,747           54,190
    Other operating ............................................          177,014          138,733           60,965           58,259
                                                                       ----------       ----------       ----------       ----------

      Total non-interest expenses ..............................        2,922,498        2,251,367        1,020,229          834,180
                                                                       ----------       ----------       ----------       ----------

      Income before income taxes ...............................          681,187          228,884          283,320           94,484

INCOME TAX .....................................................          242,937           76,818          101,245           32,722
                                                                       ----------       ----------       ----------       ----------

    Net income .................................................       $  438,250       $  152,066       $  182,075       $   61,762
                                                                       ==========       ==========       ==========       ==========

BASIC NET INCOME PER COMMON SHARE ..............................       $      .42       $      .14       $      .18       $      .06
DILUTED NET INCOME PER COMMON SHARE ............................       $      .41       $      .14       $      .17       $      .06
                                                                       ==========       ==========       ==========       ==========


WEIGHTED AVERAGE SHARES OUTSTANDING

      Basic ....................................................        1,034,934        1,113,936        1,033,585        1,092,646
      Diluted ..................................................        1,066,414        1,116,372        1,068,470        1,095,673
</Table>

     See notes to consolidated financial statements.



                                       3
<Page>

                        SOUTHCOAST FINANCIAL CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (Unaudited)



<Table>
<Caption>
                                                                                                        Accumulated
                                                 Common stock                                              Other          Total
                                                 ------------               Paid-in        Retained    comprehensive  shareholders'
                                              Shares        Amount          capital        deficit      income(loss)      equity
                                              ------        ------          -------        -------      ------------      ------

<S>                                        <C>          <C>             <C>             <C>             <C>            <C>
BALANCE, JANUARY 1, 2000 ............      1,047,987    $ 10,520,053               -    $   (714,147)   $    (85,108)  $  9,720,798

   Net income .......................              -               -               -         152,066               -        152,066

   Other comprehensive income, net
     of tax:
     Unrealized holding gains on
       securities available for sale               -               -               -               -          39,641         39,641
                                                                                                                       ------------


   Comprehensive income .............              -               -               -               -               -        191,707

   Repurchase of common stock .......        (70,446)       (569,234)                                                      (569,234)
                                                                                        ------------    ------------   ------------


BALANCE, September 30, 2000 .........        977,541    $  9,950,819    $          -    $   (562,081    $    (45,467)  $  9,343,271
                                            ========    ============    ============    ============    ============   ============



BALANCE, JANUARY 1, 2001 ............        947,872    $  9,669,155               -    $   (503,796)   $    (12,793)  $  9,152,566
   Stock dividend ...................         93,756

   Net income - .....................              -               -               -         438,250               -        438,250

   Other comprehensive income, net
     of tax:
     Unrealized holding gains on
       securities available for sale               -               -               -               -          88,725         88,725
                                                                                                                       ------------

   Comprehensive income .............              -               -               -               -               -        526,975

   Repurchase of stock ..............        (11,775)       (109,102)                                                      (109,102)
   Employee stock purchase plan .....          5,734          40,868                                                         40,868
   Issuance of common stock .........         56,190         622,040                                               -        622,040
                                           ---------    ------------                                                        -------

BALANCE, September 30, 2001 .........      1,091,777    $ 10,222,961               -    $    (65,546)   $     75,932   $ 10,233,347
                                           =========    ============                    ============    ============   ============
 </Table>





           See notes to consolidated financial statements.






                                       4
<Page>


                        SOUTHCOAST FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                     For the nine months ended September 30
                                   (Unaudited)


<Table>
<Caption>

OPERATING ACTIVITIES                                                                                   2001                 2000
                                                                                                       ----                 ----
<S>                                                                                              <C>                   <C>
         Net income ....................................................................         $    438,250          $    152,066
         Adjustments  to reconcile  net income to net
         Cash  provided  (used ) by  operating activities:
                  Income tax ...........................................................              242,937                76,818
                  Provision for possible loan losses ...................................              200,000                90,000
                  Depreciation and amortization ........................................              313,392               240,760
                  Increase in other assets .............................................             (866,020)             (711,264)
                  Increase in other liabilities ........................................              328,321               110,005
                    Net cash provided (used) by operating activities ...................              656,880               (41,615)
                                                                                                 ------------          ------------

INVESTING ACTIVITIES
         Increase in federal funds sold ................................................           (1,749,000)           (1,350,000)
         Purchase of investment securities available for sale ..........................           (2,478,066)           (1,096,810)
         Net increase in loans .........................................................          (20,465,712)          (24,084,515)
         Purchase of property and equipment ............................................           (1,595,108)           (1,610,621)
                                                                                                 ------------          ------------
                    Net cash used for investing activities .............................          (26,287,886)          (28,141,946)
                                                                                                                       ------------

FINANCING ACTIVITIES
         Increase in Federal Home Loan Bank borrowing ..................................           11,075,000             6,060,096
         Purchase of common stock ......................................................             (109,102)             (569,234)
         Proceeds from sale of stock, net ..............................................              662,908                     -
             Net increase in deposits ..................................................           15,876,627            25,435,360
                                                                                                                       ------------
                   Net cash provided by financing activities ...........................           27,505,433            30,916,222
                                                                                                 ------------          ------------

                  Increase (decrease) in cash and due from banks .......................            1,874,427             2,732,661


CASH AND DUE FROM BANKS, BEGINNING OF PERIOD ...........................................            3,942,566             1,786,411
                                                                                                 ------------          ------------

CASH AND DUE FROM BANKS, END OF PERIOD .................................................         $  5,816,993          $  4,519,072
                                                                                                 ============          ============
</Table>






     See notes to consolidated financial statements.



                                       5
<Page>


                        SOUTHCOAST FINANCIAL CORPORATION
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

           The accompanying unaudited financial statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and  with  the  instructions  to Form  10-QSB  and  Item 310 (b) of
Regulation S-B of the Securities and Exchange  Commission.  Accordingly  they do
not  include all  information  and  footnotes  required  by  generally  accepted
accounting principles for complete financial statements. However, in the opinion
of management,  all  adjustments  (consisting of normal  recurring  adjustments)
considered necessary for a fair presentation have been included.

NOTE 2 - ORGANIZATION

           Southcoast Financial  Corporation (the "Company") is a South Carolina
corporation  organized  in 1999 for the  purpose of being a holding  company for
Southcoast Community Bank (the "Bank"). On April 29, 1999, pursuant to a Plan of
Exchange approved by the shareholders,  all of the outstanding shares of capital
stock of the Bank were exchanged for shares of common stock of the Company.  The
Company  presently engages in no business other than that of owning the Bank and
has no employees.

NOTE 3 - NET INCOME  PER SHARE

           Net income per share is computed on the basis of the weighted average
number of common shares  outstanding  in accordance  with Statement of Financial
Accounting Standards No. 128, "Earnings per Share". The treasury stock method is
used to compute the effect of stock  options on the weighted  average  number of
shares outstanding for diluted earnings per share.

           In March,  2001, the Company declared a ten percent stock dividend of
the Company's  common stock. The weighted average number of shares and all other
share data have been  restated  for all periods  presented to reflect this stock
dividend.

NOTE 4 - STOCK OFFERING

           In August,  2001,  the Company  commenced a public  offering of up to
1,000,000  shares of its common stock for a price of $12.00 per share with a 10%
discount  for 4,700 or more shares  purchased.  As of September  30,  2001,  the
Company had received $622,040 for the purchase of 56,190 shares.



                                       6
<Page>


ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

           The following  discussion and analysis  should be read in conjunction
with the financial  statements and related notes appearing in the Form 10-KSB of
Southcoast  Financial  Corporation for the year ended December 31, 2000. Results
of  operations  for the period  ending  September  30, 2001 are not  necessarily
indicative  of the  results  to be  attained  for any other  period.  Statements
included in  Management's  Discussion  and Analysis  which are not historical in
nature are  intended  to be,  and are  hereby  identified  as  "forward  looking
statements"  for  purposes  of the safe  harbor  provided  by section 21E of the
Securities  Exchange Act of 1934, as amended.  The Company cautions readers that
forward looking statements  including without limitation,  those relating to the
Company's new offices,  future business  prospects,  revenues,  working capital,
liquidity,  capital needs,  interest costs,  and income,  are subject to certain
risks and  uncertainties  that could cause  actual  results to differ from those
indicated in the forward looking  statements,  due to several  important factors
herein  identified,  among others,  and other risks and factors  identified from
time to time in the  Company's  reports filed with the  Securities  and Exchange
Commission.

NET INTEREST INCOME

Net interest  income is the difference  between the interest  earned on interest
earning assets and the interest paid for funds acquired to support those assets.
Net  interest  income,  the  principal  source of the  Company's  earnings,  was
$3,026,747 for the nine months ended September 30, 2001,  compared to $2,146,893
for the nine months ended  September 30, 2000.  For the quarter ended  September
30, 2001 net interest income was $1,099,990 compared to $749,563 for the quarter
ended September 30, 2000.

Changes that affect net  interest  income are changes in the average rate earned
on interest earning assets, changes in the average rate paid on interest bearing
liabilities,  and changes in the volume of interest  earning assets and interest
bearing liabilities.

Average  earning assets for the nine months ending  September 30, 2001 increased
to $97.0  million or 54.0 percent from the $62.6  million  reported for the nine
months ending  September 30, 2000. The increase was mainly  attributable  to the
increase in loans  supported  by a $33.4  million  increase in interest  bearing
liabilities which resulted from favorable economic  conditions in the Charleston
market  area,  the  opening of the  bank's  third  banking  office in the second
quarter of 2000, and the Company's marketing efforts.

The following table presents  changes in the Company's net interest income which
are  primarily a result of changes in volume and rates of its  interest  earning
assets and interest bearing liabilities.  The increase in net interest income is
due to  increased  volume of earning  assets and  interest  bearing  liabilities
offset by a 7 basis point decrease in the Company's net interest spread. The net
interest spread is the difference  between the yield on earning assets minus the
average rate of interest bearing liabilities.





                                       7
<Page>



<Table>
<Caption>
                                                                Nine months ended                        Nine months ended
                                                                September 30, 2001                       September 30, 2000
                                                               -------------------                     --------------------
                                                       Average        Income/      Yield/      Average        Income/         Yield/
ASSETS                                                 balance        expense       rate       balance        expense          rate
------                                                 -------        -------       ----       -------        -------          ----

<S>                                                <C>                <C>           <C>        <C>           <C>               <C>
Federal funds sold .............................   $  2,060,794       $71,233       4.61%      1,871,087     $   90,824        6.47%
Investments ....................................      6,854,729       341,142       6.64       4,868,540        239,740        6.57
                                                   ------------       -------
Total investments and
    Federal funds sold .........................      8,915,523       412,375       6.17       6,739,627        330,564        6.54
Loans ..........................................     88,121,302     5,989,743       9.06      55,821,113      4,205,871       10.05
                                                   ------------    ----------                -----------     ----------
Total earning assets ...........................     97,036,825     6,402,118       8.80      62,560,740      4,536,435        9.67
                                                                   ----------                                ----------
Other assets ...................................      8,655,306                                7,272,203
                                                   ------------                              -----------
Total assets ...................................   $105,692,131                              $69,832,943
                                                   ============                              ===========

LIABILITIES
Interest bearing deposits ......................   $ 66,021,900    $2,563,775       5.18     $43,806,806     $1,939,268        5.90
Other borrowings ...............................     20,251,563       811,596       5.34       9,119,391        450,274        6.58
                                                   ------------    ----------                -----------     ----------
Total interest bearing liabilities .............     86,273,463     3,375,371       5.22      52,926,197      2,389,542        6.02
Non-interest bearing liabilities ...............      9,975,034                                7,222,433
                                                   ------------                              -----------

Total liabilities ..............................     96,248,497     3,375,371       4.68      60,148,630      2,389,542        5.30
Equity .........................................      9,443,634                                9,684,313
                                                   ------------                              -----------
Total liabilities and Equity ...................   $105,692,131                              $69,832,943
                                                   ============                              ===========

Net interest income/margin .....................                     3,026,747      4.16                      $2,146,893       4.50
Net interest spread ............................                                    3.58                                       3.65
</Table>

As reflected  above,  for the nine months ended  September  30, 2001 the average
yield  on  earning   assets  was  8.80  percent,   while  the  average  cost  of
interest-bearing  liabilities  was  5.22  percent.  For the  nine  months  ended
September 30, 2000 the average yield on earning  assets was 9.67 percent and the
average cost of interest-bearing  liabilities was 6.02 percent.  The decrease in
the yield on earning assets is  attributable to the down trend of interest rates
over the last nine months  partially  offset by the  increased  volume of loans,
which give the Company a greater return than the other types of earning  assets.
The net  interest  margin is  computed  by  subtracting  interest  expense  from
interest  income and dividing the resulting  figure by average  interest-earning
assets. The net interest margin for the nine months ended September 30, 2001 was
4.16 percent  compared to 4.50 percent for the nine months ended  September  30,
2000. The decrease in the net-interest  margin is attributable to the decline of
interest rates over the last nine months and the continued  increase in interest
bearing  liabilities  as a percentage  of earning  assets  which  resulted in an
increase in the cost of total liabilities to support earning assets. The cost of
total  liabilities was 4.68 percent for the nine months ended September 30, 2001
compared to 5.30 percent for the nine months ended September 30, 2000.





                                       8
<Page>



<Table>
<Caption>
                                                               Three months ended                       Three months ended
                                                                September 30, 2001                       September 30, 2000
                                                               -------------------                     --------------------
                                                       Average        Income/      Yield/      Average        Income/         Yield/
ASSETS                                                 balance        expense       rate       balance        expense          rate
                                                       -------        -------       ----       -------        -------          ----

<S>                                                <C>             <C>              <C>       <C>            <C>              <C>
Federal funds sold .............................   $  2,046,113    $   17,605       3.44%      3,280,237     $   55,007        6.71%
Investments ....................................      7,384,766       118,041       6.39       6,108,437        100,467        6.58
Total investments and
    Federal funds sold .........................      9,430,879       135,646       5.75       9,388,674        155,474        6.62
Loans ..........................................     95,080,482     2,051,856       8.63      64,551,209      1,617,565       10.02
                                                   ------------    ----------                -----------     ----------
Total earning assets ...........................    104,511,361     2,187,502       8.37      73,939,883      1,773,039        9.55
                                                                   ----------                                ----------
Other assets ...................................       8,771686                                7,803,415
                                                   ------------                              -----------
    Total assets ...............................   $113,283,047                              $81,743,298
                                                   ============                              ===========

LIABILITIES

Interest bearing deposits ......................   $ 68,459,737    $  793,255       4.63     $53,339,395     $  828,525        6.21
Other borrowings ...............................     24,601,395       294,257       4.78      11,062,220        194,951        7.05
                                                   ------------    ----------                -----------     ----------
Total interest bearing liabilities .............     93,061,132     1,087,512       4.67      64,401,615      1,023,476        6.34
Non-interest bearing liabilities ...............     10,658,943                                8,015,788
                                                   ------------                              -----------
Total liabilities ..............................    103,720,075     1,087,512       4.19      72,417,403      1,023,476        5.65
Equity .........................................      9,562,972                                9,325,895
                                                   ------------                              -----------
Total liabilities and Equity ...................   $113,283,047                              $81,743,298
                                                   ============                              ===========
Net interest income/margin .....................                   $1,099,990       4.21                     $  749,563        4.05
                                                                   ==========                                ==========
Net interest spread ............................                                    3.70                                       3.23
</Table>


As reflected  above,  for the three months ended  September 30, 2001 the average
yield  on  earning   assets  was  8.37  percent,   while  the  average  cost  of
interest-bearing  liabilities  was 4.67  percent.  For the  three  months  ended
September 30, 2000 the average yield on earning  assets was 9.55 percent and the
average cost of interest-bearing  liabilities was 6.34 percent.  The decrease in
the yield on earning assets is  attributable  to the downtrend of interest rates
over the last three months,  partially  offset by the increased volume of loans,
which give the Company a greater return than the other types of earning  assets.
The net interest  margin for the three months ended  September 30, 2001 was 4.21
percent  compared to 4.05 percent for the three months ended September 30, 2000.
The increase in the  net-interest  margin is  attributable  to the rate paid for
interest  bearing  liabilities,  having decreased more rapidly than the yield on
earning  assets.  The cost of total  liabilities  was 4.19 percent for the three
months ended  September  30, 2001  compared to 5.65 percent for the three months
ended  September 30, 2000, a 26%  reduction  compared to only a 12% reduction in
yield.




                                       9
<Page>


The following  table  represents  changes in the  Company's net interest  income
which  are  primarily  a  result  of  changes  in the  volume  and  rates of its
interest-earning assets and interest-bearing liabilities.




<Table>
<Caption>
                                                                                   Analysis of Changes In Net Interest Income
                                                                                    For the nine months ended Sept. 30, 2001
                                                                                     Versus nine months ended Sept. 30, 2000
                                                                                     ---------------------------------------
                                                                           Volume                   Rate                 Net change
                                                                           ------                   ----                 ----------
<S>                                                                      <C>                    <C>                     <C>
Federal funds sold ..........................................            $     6,087            $   (25,678)            $   (19,591)
Investments .................................................                 64,710                 36,692                 101,402
                                                                         -----------            -----------             -----------
Total investments and federal funds sold ....................                 70,797                 11,014                  81,811
Total loans .................................................              1,609,744                174,128               1,783,872
                                                                         -----------            -----------             -----------
Total earning assets ........................................              1,680,541                185,142               1,865,683
Total interest-bearing liabilities ..........................              1,013,197                (27,368)                985,829
                                                                         -----------            -----------             -----------
Net interest income .........................................            $   667,344            $   212,510             $   879,854
                                                                         ===========            ===========             ===========


<Caption>
                                                                                   Analysis of Changes in Net Interest Income
                                                                                   For the three months ended Sept. 30, 2001
                                                                                    Versus three months ended Sept. 30, 2000
                                                                                    ----------------------------------------
                                                                             Volume                  Rate                Net change
                                                                             ------                  ----                ----------
<S>                                                                       <C>                    <C>                    <C>
Federal funds sold ............................................           $   (41,050)           $     3,648            $   (37,402)
Investments ...................................................                41,639                (24,065)                17,574
                                                                          -----------            -----------            -----------
Total investments and federal funds sold ......................                   589                (20,417)               (19,828)
Total loans ...................................................             1,517,468             (1,083,177)               434,291
                                                                          -----------            -----------            -----------
Total earning assets ..........................................             1,518,057             (1,103,594)               414,463
Total interest-bearing liabilities ............................               939,153               (875,117)                64,036
                                                                          -----------            -----------            -----------

Net interest income ...........................................           $   578,904            $  (228,477)           $   350,427
                                                                          ===========            ===========            ===========
</Table>


RESULTS OF OPERATIONS

The  Company's  net income for the nine  months  ended  September  30,  2001 was
$438,250 or $.42 per basic share,  compared to $152,066 or $.14 per basic share,
for the nine months ended September 30, 2000. Net interest  income  increased to
$3,026,747  for the nine months ended  September 30, 2001 compared to $2,146,893
for the nine months ended September 30, 2000



The  Company's  net income for the three  months  ended  September  30, 2001 was
$182,075 or $.18 per basic  share,  compared to $61,762 or $.06 per basic share,
for the three months ended September 30, 2000. Net interest income  increased to
$1,099,990  for the three months ended  September  30, 2001 compared to $749,563
for the three months ended  September 30, 2000. See net interest income analysis
for an explanation of the increase.






                                       10
<Page>


NON-INTEREST INCOME AND EXPENSES



Non-interest  income for the nine months ended  September 30, 2001 was $776,938,
compared to $423,358 for the nine months ended  September 30, 2000. The increase
is due to the  greater  volume of loans sold and the  increase  in the number of
deposit accounts resulting in increased fees on deposits.


Non-interest  expenses  for the  nine  months  ended  September  30,  2001  were
$2,922,498, compared to $2,251,367 for the nine months ended September 30, 2000.
The  increase of $671,131 is mainly  attributable  to  increases in salaries and
benefits,  occupancy cost,  furniture and equipment  expenses and administrative
expenses.  These increases primarily relate to expenditures  associated with the
opening of the Moncks Corner branch in May 2000, preparation for the anticipated
opening of the Coleman  Boulevard  branch in November  2001,  the formation of a
sales staff, and the increase in administrative cost to support the growth.



Non-interest  income for the three months ended September 30, 2001 was $278,559,
compared to $209,101 for the three months ended September 30, 2000. The increase
is due to the  greater  volume of loans sold and the  increase  in the number of
deposit accounts resulting in increased fees on deposits.


Non-interest  expenses  for the  three  months  ended  September  30,  2001 were
$1,020,229,  compared to $834,180 for the three months ended September 30, 2000.
The  increase of $186,048 is mainly  attributable  to  increases in salaries and
benefits,  occupancy cost,  furniture and equipment  expenses and administrative
expenses.  These increases primarily relate to expenditures  associated with the
preparation  for the  anticipated  opening of the  Coleman  Boulevard  branch in
November   2001,   the  formation  of  a  sales  staff,   and  the  increase  in
administrative cost to support the growth.


LIQUIDITY

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation or maturity of existing  assets or the  acquisition of  liabilities.
The Company manages both assets and liabilities to achieve appropriate levels of
liquidity.  Cash and short-term investments are the Company's primary sources of
asset liquidity.  These funds provide a cushion against short-term  fluctuations
in cash flow from both  deposits  and loans.  The  investment  portfolio  is the
Company's   principal  source  of  secondary  asset  liquidity.   However,   the
availability  of this  source  of  funds is  influenced  by  market  conditions.
Individual  and commercial  deposits and  borrowings  from the Federal Home Loan
Bank are the  Company's  primary  source of funds  for  credit  activities.  The
Company  also has a $3 million  line of credit with the Bankers Bank of Atlanta.
Management  believes that the Company's  liquidity  sources are adequate to meet
its operating needs.


LOANS

Commercial  loans made up 43 percent of the total loan portfolio as of September
30, 2001, totaling $41.0 million.  Loans secured by real estate for construction
and land development  totaled $0.1 million while all other loans secured by real
estate  totaled  $51.2  million or 53 percent of the total loan  portfolio as of
September 30, 2001.  Installment  loans and other  consumer loans to individuals
comprised $3.5 million or 4 percent of the total loan  portfolio.  The allowance
for loan losses was 1.19 percent of loans as of September  30, 2001  compared to
1.25 percent as of December 31, 2000. In management's opinion, the allowance for
loan losses is  adequate.  At September  30, 2001,  the Company did not have any
loans that were 90 days delinquent and still accruing  interest and had $575,000
of non-accruing loans.


CAPITAL RESOURCES

The capital  base for the Company  increased  by  $1,080,781  for the first nine
months of 2001, due to operating income,  unrealized gains on available for sale
securities and capital raised through the Employee Stock Purchase Plan and stock
offering,  offset by a decrease of capital  resulting from  repurchases of stock
pursuant to the Stock  Repurchase Plan approved in 2000. The Company's equity to
asset ratio was 8.5 percent as of September 30, 2001 compared to 10.8 percent as
of December 31, 2000.


                                       11
<Page>

The Federal Deposit  Insurance  Corporation has established  risk-based  capital
requirements for banks. As of September 30, 2001, the Company's  subsidiary bank
exceeds the capital requirement levels that are to be maintained.

                                 Capital Ratios
<Table>
<Caption>
                                                                                        Well Capitalized      Adequately Capitalized
                                                                    Actual                 Requirement              Requirement
                                                                    ------                 -----------              -----------
                                                            Amount         Ratio      Amount         Ratio      Amount         Ratio
                                                            ------         -----      ------         -----      ------         -----
<S>                                                        <C>             <C>       <C>             <C>       <C>             <C>
Total capital to risk weighted assets ..............       $11,128         13.04%    $ 8,537         10.00%    $ 6,628         8.00%
Tier 1 capital to risk weighted assets .............        10,060         11.78       5,122          6.00       4,268         4.00
Tier 1 capital to average assets ...................        10,060          8.88       5,664          5.00       4,531         4.00
</Table>

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the SEC issued Staff  Accounting  Bulletin (SAB) No.102-  Selected
Loan Loss Allowance  Methodology and Documentation Issues. This staff accounting
bulletin defines the required development,  documentation,  and application of a
systematic  methodology for  determining  allowance for loan and lease losses in
accordance with generally accepted accounting  principles.  The Company believes
that it is in compliance with SAB 102.

In June 2001, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
141- Business Combinations. This SFAS addresses accounting and reporting for all
business  combinations  and defines the purchase  method as the only  acceptable
method.  This  statement is effective  for all business  combinations  initiated
after June 30, 2001.  The Company has not entered into any business  combination
transactions at this time.


In June 2001,  the FASB  issued  SFAS No. 142 -  Goodwill  and Other  Intangible
Assets.  This SFAS addresses how goodwill and other intangible  assets should be
accounted  for at their  acquisition  (except  for those  acquired in a business
combination)  and after they have been  initially  recognized  in the  financial
statements.  The  statement is effective  for all fiscal years  beginning  after
December 15, 2001. The Company  believes the effect of this SFAS will not have a
material impact on the financial position of the Company.

Additional  accounting  standards  that have been issued or proposed by the FASB
that do not  require  adoption  until a future  date are not  expected to have a
material impact on the consolidated financial statements upon adoption.





                                       12
<Page>


                           PART II - OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K.

a)       Exhibits.                      None

b)       Reports on form 8-K.           None.








                                       13
<Page>

                                   SIGNATURES


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                     Southcoast Financial Corporation
                                        Registrant


       11/13/01                         s/L. Wayne Pearson
Date:---------------                 By:----------------------------------------
                                           L. Wayne Pearson
                                          President and Chief Executive Officer

       11/13/01                         s/Robert M. Scott
Date:---------------                 By:----------------------------------------
                                           Robert M. Scott
                                          Executive Vice President and Chief
                                             Financial Officer






































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